Cryptocurrency Regulators Are Coming To Change The Industry – Five Signsbr>
A recent analysis by the Wall Street Journal of the more than 1,000 cryptocurrency offerings in the market revealed rampant fraud and identity theft.
Nobody should be surprised. Cryptocurrencies and utility tokens are unregulated, and it astonishes me that so many people who buy utility tokens are simply willing to trust that the person they are giving their money to will do right by them without any protections or guarantees.
The WSJ report, among many others if you care to look, are pretty overt signs that the industry is destined for more regulation and innovators would serve themselves by embracing a future where they join regulators at the table instead of flouting their efforts.
Regulators are working their way into the space, and we welcome their arrival, not only because we believe in the law, but also because it will bring the industry to maturity and legitimacy by attracting institutional investors and mainstream individual ones.
In this article we look at the trends pointing to impending regulation, and we hope to enlighten the deniers who believe the industry can continue to operate in a blissful bubble of unfettered speculation.
1. The regulators are prepared and strategic. The biggest sign so far that regulators are increasing their attention were the 80 or so subpoenas issued earlier this year. While crypto companies have been shaken and took to silence to watch it all unfurl, much of the industry – busy promoting its projects at conferences and in cyberspace – ignored the news and carried on.
The big news-making wave of February 28 was not the first act. For months the SEC has been going after ICOs, sometimes by ones and twos. It started not as a flood, but a trickle.
The ramp up is a hint to what is going on behind the scenes. While many believe that this blanket wave belies a lack of strategy to catch up with an industry that has out run it, the broader view shows the opposite. The SEC considered the ramp up in enforcement actions as warnings about its increasing focus. From this cadence we can expect that if the industry continues to be slow to respond, the regulatory actions could become more drastic.
In parallel and directly connected to these increasingly rapid enforcement actions, the SEC and others are sending a message in another way – officials are getting out on the road to make their presence felt in the industry. Regulators are joining conference agendas, and making their presence felt. Anyone who thinks regulators are floundering and scrambling is not looking at the whole picture.
2. The regulators are not out of touch.One thing to understand about the SEC, CFTC, and other national and international regulatory bodies is that they are not as out of touch as people in the space think.
Chris Giancarlo, head of the CFTC, became an instant Crypto-Twitter superstar with his down-to-earth approach during a February 6th meeting of the U.S. Senate Committee on Banking. Giancarlo’s story: his niece’s interest in crypto has helped him appreciate the enthusiasm in the space. His stance that policy should ensure innovation was indicative of the fact that regulators are not the evil, innovation-killing automatons they are portrayed as.
Regulators can have nuanced understanding and personal connections that inform their policies. These are individuals who have a policy rulebook, but one that they apply with consideration informed by their careers and personal experience.
3. Exchanges are changing their behavior.Some of the industry’s biggest and most important players are changing their approach.
For example, Bittrex, one of the world’s largest crypto-asset exchanges,announced in March that it would delist 82 currencies from its exchange, specifically, assets not compliant with securities laws. Bittrex said it is “committed to incubating new blockchain technology projects” and “a robust digital-token review process to ensure the tokens listed on the exchange are compliant with U.S. law and are not considered securities.”
Coinbase, another major exchange, has been visible and outspoken about the role of regulators. The exchange’s chief legal and risk officer Mike Lempres’ has said “federal regulators already have sufficient authority to regulate this space effectively.” Coinbase (which is also facing two class action lawsuits) understands that the regulators cannot be kept out.
Exchanges are big fish in the ecosystem. They provide the on ramp for consumers and investors to get started in the space. If the exchanges lead the way, the right balance of innovation and regulation can be achieved. So far, exchanges have decided to build first and work on regulatory requirements later. At VRBex, we are working to get it right the first time in terms of compliance.
4. People are getting scammed. The reason for all the focus on regulation is that people are getting hurt. We need to look no further than the BitConnect scam, one of the most high-profile crypto scams to date, to see the danger in the ecosystem. One figure puts daily losses to scams at approximately $9 million per day.
The SEC and other regulatory bodies are charged with protecting consumers. As long as these scams continue to harm people and scare away the mainstream, the industry will flounder. It is simply bad business to believe that the benefits to a select few of cryptoassets and blockchain technology outweigh the harm done to individuals.
5. Security tokens are changing the crypto landscape. The idea behind security tokens is to use a distributed ledger to handle the exchange and management of securities represented in digital form. The notion is catching on, and the model is being used to tokenize equity fundraising, real-world assets like real estate or licenses, and just about anything that can be represented as a security.
While the concept seems new, many very smart and experienced business people such as Habor and Polymath saw the puck moving in this direction. Security tokens are designed with regulation in mind.
Those who conceived of the security-token framework as a next-generation way to make use of ICOs did so with an idea of interfacing with regulators rather than hindering them.
The market is responding to this concept, and responding well. Interest in using the security-token model as a means of fundraising is on the rise.
It’s a new and much needed approach for the industry: build with regulators in mind.